Success of Northeast Regional Cap-and-Trade System Shows Market-Based Climate Policy Is Well Within Reach

By Sean Pool
Posted on February 7, 2013, 5:15 pm

The success of a regional cap-and-trade program in reducing carbon pollution in the U.S. Northeast over the past few years has scarcely been mentioned in the debate over how to reduce carbon pollution.

Unwilling to wait for the federal government to enact sensible carbon limits and clean energy investment policies, nine U.S. states—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont—joined together in 2008 to create the Regional Greenhouse Gas Initiative, or RGGI.

Since its inception, the Regional Greenhouse Gas Initiative has delivered cost-effective results for power companies and consumers. Today the program announced plans to set a new carbon-reduction goal that is 45 percent more ambitious than the one before it. This is great news for consumers and energy companies in the Northeast—and for the climate.

Business leaders in the region are already lauding the move in a press release sent to journalists from Cater Communications. “I’ve personally witnessed rapid growth among clean energy and energy efficiency businesses, and strengthening our commitment to RGGI will help create additional job opportunities while improving air quality for generations to come,” said Sarah Brown, the owner of a small marketing and communications firm in New Hampshire.

“RGGI creates a policy environment that makes clean energy investment attractive in Massachusetts,” said David Miller, the executive managing director of the Clean Energy Venture Group in Massachusetts. “When you have a program that’s helping businesses grow and creating jobs at a fast clip in this economy, the logic for strengthening the program is clear.”

Peter Arpin, the owner of a moving and storage company in Rhode Island, said, “The return-on-investment for state and local economies is enormous.”

The oft-repeated mantra of both conservatives and progressives is that “the states are the laboratories of democracy”—places where innovative policy solutions can be tested and vetted before being adopted more broadly at the federal level. The fact that these nine states—together comprising roughly 20 percent of all U.S. economic output—have been so successful at reducing carbon emissions from power plants should serve as a wake-up call to policymakers in Washington.

A recent report by the initiative is a must read for anyone who wants to understand how cap and trade is working today to reduce carbon pollution in 20 percent of the U.S. economy while fostering steady economic growth and keeping electricity rates low at the same time.

The report states that between 2008 and 2011, the states involved with the Regional Greenhouse Gas Initiative have reduced their carbon emissions by about 20 percent. During the same time period, the program put $1.1 billion back into the pockets of consumers through savings on their energy bills. It has also created 16,000 job years. (A “job year” is one job sustained for one year.) The program is expected to lead to a net economic boost of $1.6 billion for the region by the end of the decade, as consumers and businesses spend the extra cash they saved on energy bills in more productive ways, according to an independent report by the Analysis Group. The savings are coming through a combination of improvements in energy efficiency—made possible by reinvesting the proceeds from carbon-credit auctions—and rebates through a Direct Bill Assistance program to more than 84,000 low-income families.

If there is any doubt that the program is successfully reducing carbon pollution in the power sector as it promotes economic growth, figures 4 and 5 from the RGGI report, which show marked decline in power-sector emissions side by side with steady economic growth, should dispel it.

Contrary to the commonly held misconception that cap and trade would be a “bureaucratic nightmare,” this cap-and-trade program has reduced carbon, created jobs, and promoted clean energy investments with a lean staff of fewer than 10 employees. Overall administrative costs for all stakeholders are estimated to be only 0.5 percent of the sum of auction proceeds.

Also contrary to common criticisms of cap and trade: The Regional Greenhouse Gas Initiative has not had a perceptible impact on electricity ratepayers. Estimates suggest that retail electricity rates have risen by less than 1 percent, or 43 cents per month, for the average ratepayer since 2011.

In addition to reducing carbon pollution, keeping electricity rates low, and creating jobs, the program has also generated $617 million in revenue for the participating states. While each state has leeway on how to use these funds, in aggregate they have spent 52 percent of these funds on energy efficient investments, 11 percent on deployment initiatives for new clean energy sources, and the rest on low-income rebates to ensure no harmful effects of the program. A detailed accounting of how the revenues are being invested is available in the investment report.

The Regional Greenhouse Gas Initiative’s success since 2008 is demonstrable proof that sensibly limiting carbon pollution from power plants is not only doable, but it’s actually being done—right here in the United States. And it is being done so successfully and cost effectively that the states that volunteered to be part of the experiment have now announced that they will lower the carbon cap by an additional 45 percent.